Thursday, February 28, 2013

Gold is Not Enough, I: The Need for New Thinking

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As Pope Leo XIII noted as far back as 1891 with the “first” social encyclical, Rerum Novarum (“On Capital and Labor”), some new thinking is needed to address the new things plaguing the world.  The old thinking just isn’t going to do it.

That’s why we’ve continued our campaign to see if we can get Virginia Delegate Bob Marshall to talk to CESJ president Norman Kurland.  Your two cents (soon to be two [hundred] dollars, if present trends continue) might help sway him — after all, he does have to think about constituents and potential constituents.  Bob can be reached at delegatebobmarshall [at] Hotmail [dot] com.

February 27, 2013

Dear Mr. Marshall:

Today’s economic and financial situation requires some creative and innovative thinking from a true natural law perspective.  We need something that has the potential to shake us free from the mistakes of the past, and take advantage of the work of such pivotal thinkers as Louis O. Kelso, Mortimer J. Adler, and Pope Pius XI.  Take, for example, the role of the central bank.

In the 1930s the Federal Reserve was diverted permanently from its private sector mission to serve the needs of the federal government.  In reaction, there has been a growing demand to “End the Fed” and turn over everything to the U.S. Treasury.  Henry Simons’s “Chicago Plan,” also known as the “100% Reserve Requirement,” was one such proposal.

The idea was to reestablish the Federal Reserve as a branch of the Treasury Department, transform all commercial banks into what amounts to credit unions, and back the entire money supply with government debt.  This would have provided 100% reserves, yes, but reserves of debt, not assets.

Simons was not able to figure out a way to prevent the federal government from seizing control of the “independent” monetary authority that would have been charged with setting the amount of new debt that the country could absorb.  This, of course, would have given the federal government what amounted to a “blank check” — which the implementation of Keynesian economics gave it, anyway.

Despite the urgings of Irving Fisher (desperate to “reflate” the currency to restore the millions he had lost speculating on Wall Street) and Father Charles Coughlin (who wanted to ensure that “the Jews” could no longer control money and credit), Simons refused to endorse his own plan.  Consequently it was never adopted.

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